The Coronavirus Aid, Relief and Economic Security (CARES) Act that was passed by Congress and signed by the President is a $2 trillion package designed to provide relief for American workers, businesses, hospitals, government, and certain nonprofits and other employers.
A voluminous bill of over 880 pages, we will do our best to summarize it for you, focusing on the small businesses that are the backbone of our nation. A link to the US Senate Committee on Small Business & Entrepreneurship “Small Business Owners Guide To The CARE Act” can be found here. Of course, as always, don’t hesitate to reach out if you have any questions.
Below are details.
Paycheck Protection Program (PPP) Loans
These provide cash flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this national emergency. If payroll is maintained, the loans will be forgiven. There are caveats of course. Businesses and entities must have been in operation on February 15, 2020. Small businesses must have less than 500 employees, or the applicable size standard defined by the North American Industry Classification System (NAICS). Individuals who operate a sole proprietorship or as an independent contractor, and eligible self-employed individuals CAN take advantage of this. Since this is retroactive to February 15, it can help bring workers who may have already been laid off back on to payrolls. These loans are available through June 30, 2020.
The loan size will depend on the businesses situation and calculated in different ways depending on when the business was operating and whether an Economic Injury Disaster Loan (EIDL) was obtained.
Eligible costs include compensation (including employee/owner up to $100,000); payment for vacation, parental, family, medical or sick leave; allowance for dismissal or separation; healthcare benefits and insurance premiums; retirement benefits; State and local tax assessed on employees’ compensation.
Payroll costs for employees over $100,000 are not eligible, nor are certain taxes withheld under IRS Code chapters 21, 22, and 24. Qualified sick and family leave for which a credit is allowed under section 7001 and 7003 of the Families First Coronavirus Response Act are also not eligible, nor is compensation for employees whose principal residence is outside the US.
Allowable uses of the loan include payroll, costs related to group health care benefits, employee salaries, commission, and other compensation (subject to exclusions), interest on mortgages, rent, utilities, and interest on debt obligations incurred prior to the covered period.
For loans that are not forgiven, the maximum term is 10 years at 4% maximum interest, with zero prepayment fee.
Forgiveness on a covered loan is equal to the sum of payroll costs (per a specific formula) incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000).
To get forgiveness on a PPP loan, you must apply through your lender, and include specific documentation. The US SBA provides a free online referral tool to SBA-approved lenders.
Employee Retention Credit For Employers Subject To Closure Or Experiencing Economic Hardship
This provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees. Eligible employers are those whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings, as well as employers who have experienced a greater than 50% reduction in quarterly receipts from the prior year.
Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit. For employers with less than 100 employees, all employee wages are eligible, regardless of whether they are furloughed.
The credit is not available to employers receiving assistance through the Paycheck Protection Program.
Delay Of Payment of Employer Payroll Taxes
This allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments at the end of 2021, and 2022.
Deferral Of Employer Social Security Taxes
This allows employers to defer payment of their share of the Social Security tax after the effective date of the CARES Act through December 31, 2020. This applies to employers whose operation is fully or partially suspended due to governmental orders, or whose operations have experienced a 50% decline.
Tax Exclusion For Employer Student Loan Repayment Benefits
This is where employers can provide a student loan benefit to employees up to $5,250 annually towards an employees’ student loans from the date the bill was signed until January 1, 2021. Deferred tax amounts will be paid over two years in equal installments on December 31, 2021 and December 31, 2022.
Retirement And Defined Contribution Plan Changes
These include the ability of impacted individuals (those who test positive, or are caring for a spouse or dependent who tests positive) may withdraw up to $100,000 from retirement plans and IRAs without an early withdrawal penalty. The distribution is taxed over three years, doesn’t require 20% federal tax withholding, and may be repaid any time during the subsequent three years. Loans from retirement plans and IRAs are available up to $100,000 or 100% of the vested balance for impacted individuals with loan repayment delayed for 12 months from the enactment date through the end of 2020. Interest though is still payable into the retirement vehicle and the monies are still taxable upon withdrawal.
Required Minimum Distributions are waived on certain retirement plans and accounts, and retirement plans may adopt amendments related to the CARE Act through 2022.
The Small Business Debt Relief Program
This will provide immediate relief to small businesses with non-disaster SBA loans, including 7(a) 504, and microloans. The SBA will cover all loan payments on these loans (principal, interest, fees) for six months. This is also available for new borrowers who take out loans withing 6 months of the President signing the bill in to law.
Businesses must meet certain size standards, be based in the US, be able to repay, and have a sound businesses purpose. Depending on the type of non-disaster loan, and which criteria you meet, contact the SBA and use their LenderMatch referral service.
They will be able to modify terms and conditions of a contract, and reimburse contractors at a billing rate up to 40 hours per week of any paid leave including sick leave. Eligibility is determined where employees and subcontractors cannot work on site or telework due to federal facilities closing.
This sets the rates for paid leave under the Emergency Paid Leave Act and the Family Medical Leave Act. Employers must provide two full weeks of emergency paid leave, not to exceed certain amounts for employees to provide care for an impacted individual. Additionally, paid leave has also been extended to employees who were employed for at least 30 days of the prior 60 days and were laid off after March 1, 2020.
Employers can claim a refundable tax credit for paid leave granted under the FMLA with penalties waived for failure to deposit certain payroll taxes.
This assistance will be extended to individuals who may or may not have been eligible for unemployment insurance benefits under the State or Federal Laws. This includes self-employed people, part time workers, gig workers, and per-diem workers who can’t work as a result of the coronavirus pandemic. This is a temporary benefit for unemployment ending on or before December 31, 2020, and is limited to 39 weeks. The amount is determined by each state and is then increased by $600.
The CARES Act provides a one-time check of $1,200 to most adults who earn under $75,000 (single taxpayer) or $150,000 (married filing joint). $500 will be sent to cover every child in qualified households. The $1,200 phases out as income increases. For every $100 over the limit earned, the amount drops by $5. That means individuals with no children earning over $99,000 and married couples without children earning over $198,000 will not receive a stimulus check. Checks are supposed to be sent within three weeks.”